Fixed vs. Variable Rate Loan Comparison đ
Compare the **total cost, payment stability, and worst-case scenario** between a standard fixed-rate loan and a variable-rate loan (like an ARM).
Comparison Parameters
How the Variable Rate Risk is Simulated
To provide a meaningful comparison, the calculator assumes a **Worst-Case Scenario** for the variable rate loan (often a Hybrid ARM) where the interest rate increases by the maximum **Periodic Cap** at every adjustment opportunity until the maximum possible rate (Lifetime Cap) is effectively reached.
EMI Calculation Formula
The standard Equal Monthly Installment (EMI) formula is used for all payment calculations:
EMI = P [ i(1 + i)âŋ / ( (1 + i)âŋ - 1 ) ]
Where:
P = Principal (Remaining Balance for recalculations)
i = Monthly Rate (Annual Rate / 1200)
n = Term in Months (Remaining Term for recalculations)
The "Lifetime Cap" is typically calculated as **Initial Rate + 5%** for common ARMs (e.g., 5/1 ARM). The simulation uses this general rule unless specified otherwise by the user (not included in this simplified form).